An expansionary fiscal policy:
A) puts upward pressure on interest rates causing the currency to appreciate.
B) puts upward pressure on interest rates causing the currency to depreciate.
C) puts downward pressure on interest rates causing the currency to appreciate.
D) puts downward pressure on interest rates causing the currency to depreciate.
E) does not change interest rates but causes the currency to depreciate.

Question

Quizplus · Accepted Answer

Expansionary fiscal policy, which involves increased government spending or decreased taxes, typically leads to higher interest rates as the government borrows more. Higher interest rates attract foreign investors looking for higher returns, which increases demand for the domestic currency, causing it to appreciate.

An Expansionary Fiscal Policy